MONTREAL - The re-eruption of the conflict between Ukraine and Russia over
payments for gas deliveries illustrates that developments in Eurasian energy
geo-economics do not take vacations, even over the New Year holidays.

The Ukrainian-Russian dispute, for example, takes place in circumstances
(economic, financial, political, military, even cultural) that are different
from those surrounding their last tiff three years ago. Its significance and
its dynamics differ accordingly.

Despite themes that appear to recur, there is no "grand design" in Eurasian
energy exploration, development and production that is implemented in any
step-by-step fashion. There are, instead, multiple and competing partial
designs that intersect and interact

interdependently in ways both foreseeable and unforeseeable. The agreement last
month to double the volume of the pipeline owned by the Caspian Pipeline
Consortium (CPC), running from the Tengiz oil field in northwest Kazakhstan
across southern Russia to the Black Sea port of Novorossiisk, is a case in
point.

At its foundation in early 1995, the CPC originally comprised Russian,
Kazakhstani and Omani companies, formed nearly behind the back of Chevron's
venture TengizChevrOil, which operates the Tengiz field. In reply, Chevron cut
investment, but it was the inability of the CPC to raise capital on the world
markets combined with the autocratic management style of its Dutch chief that
made progress impossible.

Later in the 1990s, the CPC's ownership and management structures were
radically transformed, such that by 2009 its shareholders included the Russian
Federation represented by two companies with 31%, Kazakhstan represented by
KazMunaiGaz with 19%, a dedicated Chevron pipeline company with 15%, a
LUKoil-Atlantic Richfield joint venture with 12.5%, a Mobil pipeline company
and a Rosneft-Shell joint venture each with 7.5%, and a few smaller
stakeholders with 2% each or less.

Its current capacity is 670,000 barrels per day (bbl/d), although this has
recently been occasionally augmented through the use of additives to increase
flow. The doubling of this capacity was foreseen in the original construction
agreement, and planning and construction should have started not long after the
pipeline opened in late 2001. However, Kazakhstan and its president, Nursultan
Nazarbaev, for years implored Russia and its president and now Prime Minister
Vladimir Putin to make good on this promise, without effect.

Coincidence or not, it was only when the Kazakhstan-Caspian Transportation
System (KCTS), which provides for taking Tengiz oil by overland pipeline to the
port of Atyrau for transit across the Caspian Sea to Azerbaijan where it has a
number of routes for reaching the world market, not least the
Baku-Tbilisi-Ceyhan (BTC) pipeline to the Turkish Mediterranean coast. (For
details of the KCTS, see
Caspian pipelines ease Russia's grip, , Asia Times Online, July 8,
2008).

In the event, the CPC expansion will be implemented not by construction of a
parallel pipeline but by additional pumping stations with augmented storage
facilities at the Novorossiisk terminus. It is said that financing issues held
back the final decision on the CPC's expansion (estimated now to cost US$1.5
billion) but also, coincidence or not, that decision seems to have awaited the
conclusion of an agreement on construction of an overland pipeline from Burgos,
Bulgaria, on the Black Sea, to Alexandropoulos, Greece, on the Mediterranean.
(The Burgos-Alexandropoulos route is sometimes now referred to as the Bapline.)

This line provides a route for avoiding the already overcharged Turkish
Straits. Russia has a majority participation in the construction consortium at
51%, with the remainder distributed among Bulgarian and Greek companies. This
distribution tends to remove the Burgos-Alexandropoulos route as a potential
egress for oil arriving on the eastern Black Sea coast conveyed there by
non-Russian companies, such as those managing the production and export of oil
from Azerbaijan and Kazakhstan.

In particular, it complicates finding an export route for Kazakhstan's oil from
the offshore Kashagan deposit, unless enough new Tengiz oil goes through the
CPC to Burgos-Alexandropoulos to free up the KCTS trans-Caspian route for
Kashagan oil.

Still, increased amounts of Kazakhstani oil arriving on the Georgian Black Sea
coast will need to find a way to world markets. Perhaps by then world prices
will have recovered enough to make the reversal of Ukraine's Odessa-Brody
pipeline and its extension through the the Polish Baltic Sea coast a
possibility (see Ukraine
clash threatens oil to Europe, Asia Times Online, August 2, 2008).

Agreement on the CPC expansion was also delayed for some time by Bulgaria's
insistence on receiving higher transit fees, for which it used as leverage the
question of the source of its own gas imports. On this issue, Russia elbowed
Turkey out of the way when, in January 2008 during a visit by Putin to Sofia,
Bulgaria enrolled as a transit country in the South Stream pipeline project
(gas from Russia under the Black Sea to the eastern Balkans and thence to the
rest of Europe), itself a main strategic competitor to the EU-sponsored Nabucco
gas pipeline project (see
Euro-Caspian energy plans inch forward, Asia Times Online, November 27,
2008).

From looking at just this corner of the European energy tableau, it can be seen
that this whole "game" is a combination jigsaw puzzle, chessboard, poker game
and crap shoot. Yet there is no denying the high stakes. In the Ukraine gas row
this year, for example, Russia has clearly planned its moves with much greater
reflection and attempted subtlety than three years ago, when Moscow television
headlines showed with fanfare the taps to Ukraine being closed at midnight.

Yet even if Russia can be said to have a "grand design", the same could be said
of China, Kazakhstan, Azerbaijan and other countries. For this reason, the
Russian-Ukrainian gas row cannot properly be seen in a bilateral, or even
trilateral (with the European Union) perspective. It is rather the interplay of
all these interests, together with the multi-level bargaining, jockeying for
position, and feinting, to which is added the random unexpected event and
global financial surprises, that makes the whole nothing less than a
roller-coaster that lays its own track ahead of it as it goes along.

Robert M Cutler (http://www.robertcutler.org) is a senior research
fellow, Institute of European, Russian and Eurasian Studies, Carleton
University, Canada.